All Equities are equal but some are more equal than others
Posted on 14. juin, 2010 by Jean Jacques Ohana in Weekly Focus | Commentaires fermés
As we have commented upon in our previous posts, all risky asset classes have been subject to a global deleveraging process since May 2010. Riskelia’s global trend indicator (which watches equities, corporate debt, hedge funds, depletable commodities and emerging currencies) has switched from highly positive to slightly negative in only a few weeks :
In our post Is there any safe haven left?, we had tried to examine whether an asset class could play the role of a “safe haven” in today’s markets. And our answer was NOT REALLY, as the German and French bonds which have benefited the most from the recent deleveraging are presently subject to dangerous manias and offer too low returns to be considered a good deal in today’s turbulent waters. In this post, we try to analyze this issue under a different perspective and ask the question: are there any havens within the equity asset class itself?
A sector and country analysis leads to very instructive conclusions regarding equities prospects:
It appears that equities are differentiated according to the macroeconomic prospects in the domestic country. The higher the current account balance and the healthier the budget balance, the better the trend dynamics. For example, the German DAX, the Sweden OMX and the South Korean KOSPI remain in positive bullish trends while the Spanish IBEX and the Italian MIB experience very strong negative trends.
Another interesting picture comes from the emerging stock markets. Particularly impressive are the downward trends in the Brazilian Bovespa or the Chinese Shanghai Composite. Maybe these vulnerabilities are the results of the implosion of the financial bubbles observed since 2009 (recall that the Brazilian and Chinese stock indices grew by more than 80% in 2009). In any case, it is worth following the dynamics to see if they develop into long-term bearish trends, in which case a hard landing of the emerging economies would be expected.
The sector Radar on European stocks gives a very contrasted picture:
While the weakest sectors are those exposed to external financing such as banking, insurance and utilities, some sectors have benefited from the the euro’s fall (travel and leisure, auto & parts, technology). The differentiation across sectors remains very strong, to the point that some sectors, which have been used as havens in the deleveraging process, are still subject to financial bubbles (food and beverage and personal & household)!
As is clear from this analysis, some equities have resisted nicely to the recent selloff, some remaining sharply up year to date. It is worth following this resisting bastion as the genuine sign of a bear market is when the top performers enter themselves in bearish trend. As we can see, it is far from being the case for now.
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